Debt Settlement FAQs

What Is Debt Settlement?
Debt settlement is when you pay off debt at a reduced amount, often at 50% or less.

Who is the best candidate for debt settlement?
A small business or individual with $30,000 or more of unsecured debt, who has a 401k plan, an inheritance, or a lump sum distribution. Usually, approximately 60% of the debt amount must be set aside in escrow, to settle debt when agreement is reached with the creditor.

Why do I need at attorney? Why can’t I do it myself?
Most of the time creditors will not negotiate with individuals, or debt settlement companies. They will ask an attorney for a “power of attorney”. An attorney locks in the terms, so that the creditor cannot change them, and try to collect more interest or fees later. An attorney can also protect you in the event of a lawsuit occurring while negotiations are ongoing.

What happens if there’s a lawsuit?
Usually the communication with the creditor begins early enough that a lawsuit is avoided.

How long does it take to settle all the debt?
Most of the time a creditor will not begin negotiating until debt is 6 months past due. In most cases debt settlement is usually completed as soon as terms are reasonable.

Am I taxed on the money saved?
There could be tax due on money saved. Your accountant can see if you are exempt from taxes under IRS Insolvency Rules, Publication 4681.

What are the risks?
There is a risk of a lawsuit occurring before the debt is settled, which is usually avoided by using a local attorney. One’s credit score could decline as negotiations are taking place, as penalty interest and fees are assessed.

How can I learn more?
For more information or to set up a consultation, contact the Law Offices of Mike Norris at (317) 266-8888 or email Mike at

Indianapolis Small Business and Consumer Protection Attorney: bankruptcy, debt settlement, and student loan relief